Here is how Israel has created countless startups since the 90’s

Military service is mandatory in Israel. And this has taken its toll on how the Israelis see business. It is precisely in the army that, according to experts, the Startup Nation is born.

Sara Freed Katz, 29 years old, one of the best students in her class. At 18, as all other Israelis, Sara enlists herself in the Army to comply with the mandatory service (2 years for women, 3 years for men). To the utmost pride of her mother, she was selected for the special unit 8200, known as the “signal intelligence” unit. “It is sort of a military brain. I worked as an analyst and researcher but in the beginning, I did not know what I was going to do at all. Only after being there did I come to realize all these Israeli innovative trends actually come from there”, Sara told ECO, in Israel.

Sara is one in 7.4 million. “When an entrepreneur has a business idea, he will kick it off within a week”. This sentence, which can be found on the “Start-Up Nation” (2009) book, co-authored by Dan Senor and Saul Singer, explains how a country with 7 million people and only a few years of History, surrounded by enemies and constantly under threat since its founding, can produce more startups than the larger, most peaceful countries in the world, like Japan, India, South Korea, Canada and the United Kingdom.

Our Editor, Mariana de Araújo Barbosa, travelled to Israel last week, having received an invitation from the Foreign Affairs Ministry of Israel. This is the first of a series of articles published in the context of the startup ecosystem in the country, with a focus on the way the country has created these startups.

The five elements

Israel’s success as an entrepreneurial country, according to Ran Natanzon, director of innovation at the country’s Foreign Affairs Ministry, is connected with the fact that the Army, the Universities, the Government, the multinationals, and the venture capital all share a common goal: innovation. “In Israel, innovation is everywhere”, Ran explains. There are entrepreneurship centres in every university and even city councils have their own initiatives to accelerate ideas in every city”, he further explained in detail. These are places were people without experience can meet mentors and work with or for them. “Entrepreneurism is part of the country’s culture and I don’t think the government affects this process negatively. It even has a good attitude when it comes to these initiatives, attenuating the failures their market failures. Our first-ever venture capital fund was created in 1991 by the government itself.”

This attitude has its own name: it’s called chutzpah. And that is what the Israelis put in the first place when it comes to reaching their goals. Chutzpah can be translated to “audacity” or “boldness”. “The source of the innovation is actually the lack of resources in the country: people had to rebuild a resourceless country, over and over again”, Natanzon explained.

The innovation director also talked about three fundamental construction phases of this so-called “entrepreneurial nation”: the first phase was originated by a need to create an irrigation system nationwide for agriculture, in the 50’s; the second one provoked a change of mindset in the people: “Jews wanted their sons and daughters to be lawyers. Now, they want them to be entrepreneurs”, Natanzon says, as he analysed the cultural changes experienced by his country all throughout the years. And the third phase is the normalization of failure “ The entrepreneurs now are seen as sort of the country’s rock stars: they give interviews, make covers for newspapers, and they are also special guests at the major talk shows in the country”, he argues.

This mindset, which has been consolidated all throughout the years, was built upon certain characteristics which were inherited from one generation to another, and they are indeed the “basis of the Israeli entrepreneurial identity”, he defends. “Informality, frankness, ambition to achieve goals and tolerance to failure. It is okay to fail. And also okay to target the global market from day one. We had no other chance”, Natanzon added.

It is mandatory both for man (3 years) and women (2 years) to enlist in the army. All Israelis do it, usually starting at the age of 18.

Israeli State of Mind

“I can’t find a direct link between these two things (maturity and my army experience), but I also can’t deny that being in the army made me more responsible and experienced than any other thing would have, at the age of 18. I believe that the Israeli startup ecosystem is based on this survival instinct that Israelis were forced to develop along the years, ever since the Holocaust, up until the modern times, and even with the challenges our country faces since its birth”, Yotam Hod, co-founder and CEO of Lumir Lab, a startup which is developing a solution against endometriosis based on cannabis.

Yotam Hod met two of his startup’s co-founders in the army. “Going to the army is part of growing up in Israel. There is no other country in the world where people have this experience at 21 because, besides the specialized training, the army also teaches us about strength, management and innovation”, Natanzon noted.

“To say the truth, the secret to Israel’s success goes beyond the individual talent. There are many places out there with talented people, some of which have a far superior number of engineers than Israel”, according to Senor & Singer, in Start-Up Nation.

This is exactly the case of Mobileye. Amnon Shashua and Ziv Aviram: two professors coming from the Academia, who created a company that entered in the NYSE in 2014 and which was bought by Intel in 2017 for €15.3bn, in what was the biggest exit ever in the country’s history.

This freedom to fail is a state of mind, but it also is a way of being.

Ran Natanzon

Director of Innovation at the Ministry of Foreign Affairs of Israel

Mass Challenge was one of the first startup accelerators to be created in Jerusalem. It was created in 2007-08 in Boston, in the post-crisis period, appearing in a time when “no one was thinking on the long-term. People were scared”, Shai-Shalom Hadad reports.

“We connect entrepreneurs through our network. And Israel has a very informal community”, explains Hadad, Mass Challenge’s director of operations. This startup accelerator, which is one of the biggest in the world, opened an office in Jerusalem two years ago. Founded as a non-profit, in Jerusalem, the accelerator got an important new feature: it renounced to the privilege of retaining the equity of the startups it is accelerating. Why? The director of operations explains: “We believe we can help them succeed without compromising their financial goals.”

The accelerator is accepting applications for startups from all over the world — at the moment they have a startup portfolio of around 136 startups — and it is also getting ready to launch a new phase of applications for their Jerusalem hub, on the 16th of December. “The programme lasts for seven months and last year alone we received 640 applications from 41 different countries”, the director noted.

“We are also trying to export what we are doing. We have a very local ecosystem, but we want to be recognized out there. And I believe that visionaries need to be in a certain place in order to achieve a certain way of seeing things”, says Shai Melcer, Biohouse’s CEO, an accelerator and co-work space with a global focus which recently opened in Jerusalem, dedicated to the bio area. “What is it that defines Israel? Its people. It doesn’t matter where they come from but rather what they are pursuing. We invest in people, we make peace — and we make war — with people. It is all about people”, he outlines.

Mobileye is one of the most successful cases in the country’s startup scene.Mariana Araújo Barbosa, Editor/Journalist at ECO